A time capsule of the greatest financial mania in the history of mankind, told in real-time by regular folks and patriots. May future generations better understand the madness of crowds, and how power and money corrupt.

January 24, 2008

Love seeing Yun trying to spin his way out of this one. Too bad he can't be sued or arrested.

Merrill says the total decline the next few years will be 20% to 30%. Hell, even those numbers are optimistic, especially for towns like Phoenix, Vegas, Miami, Detroit, Naples, Tampa, Boston, DC, Sacramento, OC, Tucson and oh so many more.

Housing prices to free fall in 2008

According to a Merrill Lynch report, home prices will drop 15 percent this year, and declines will continue in 2009.

NEW YORK (CNNMoney.com) -- The worst housing financial crisis in decades is only going to get worse, a Merrill Lynch report said Wednesday.

The investment bank forecasted a 15 percent drop in housing prices in 2008 and a further 10 percent drop in 2009, with even more depreciation likely in 2010.

By contrast, the National Association of Realtors (NAR) expects housing prices to remain flat in 2008. NAR did cut its home price estimate for the current quarter, however, to a 5.3 percent year-over-year decline, which represents the steepest drop in that price measure on record. But NAR sees an uptick in home prices in the last two quarters of 2008.

"Merrill Lynch's figures are way too pessimistic, and they are unprecedented," Lawrence Yun, the National Association of Realtors chief economist told CNNMoney.com. "There is so much variation in local housing markets, and we see stable price conditions for 2008."

53 comments:

dude I am working on a long term IT project at merrill right now...in 10 years of consulting I have not seen a more fucked up place than this....real estate could easily crash as much as they say...however, i would not trust ANYTHING these people say. i wouldn't trust them to tell me the sky is blue that is how little respect i have for this place

on the other hand they spend money like it's going out of style so i can't complain too much lol

Look at the Dollar falling hard,and then look at Precious Metals (gold up 23 in 5hrs),and one should be able to explain the Rigged DOW swing yesterday. The Dollar is tattling on the WallStreet rigmeisters. Spinnit!

Of course I would believe the NAR over Merrill since they have downwardly revised their estimates, oh I don't know, like 8 TIMES!

Just draw a line from the Case-Shiller Home Price Index current level, back down to the historic trend (approx bond index yield) and you'll see we are about 30+% overpriced and it will be 2010 at the earliest (current rate of decline) for prices to return to the previous 100yr trend.

I wouldn't be surprised to see an overshoot at that point too. That's when the *real* bargains will be had.

ya not going to happen. the Repugs know all too well what they did and what is going to happen. they are getting FAR away from ground zero. It's like fighting over the stearing wheel AFTER the car already crashed thru the guard rail and is plummeting to certain doom.

Look at the Repug field. A Mormon? A "Huck-a-who"? A cross dresser? Old Man Thompson just quit. and Ron Paul. Don't get me wrong I love Ron Paul. I would vote for him. But even he can't do sh!t about what is going to happen.

Besides have you seen Bush Co. lately? They don't seem too worried. It's like they have their rocket ships fueled, fired and ready for launch.

I don't know if I would trust Merrill. If they were so smart on the direction of housing prices, they would have been smart enough not to leave $22B (so far) of toxic mortgages on their balance sheet. My personal guess would be a larger loss in 2008 followed by flat prices for 2-3 years.

did that naked martian "humanoid" that they "premiered" the film of walking to the rabbit sized martian lander last week try to eat the cameras? how many millions of acres he might pay for a suit?....although the space industry paid out twenty three bucks for every dokllar spent, why am i thinking of my personal health and longevity instead as a scientific how to,fountain of youth

Home prices ON AVERAGE are 3 standard deviations above the mean-any of you rocket scientists know what that means? it means that ON AVERAGE considering the historic realtion of incomes to home prices that we are CURRENTLY ON AVERAGE 66% too high - meaning if this stat is correct the call by Merrill is WAY too optimistic - consider this - with 20% down and a national ave income of $60k - how much house does that buy? and where are prices currently? the difference is how much home prices need to decline or incomes need to rise- now which is more likely?

I agree with this assessment, anddid when I first read it when itinitially came out...

Templeton’s Prediction: Housing Prices to Fall 90%

Written by Tracey

January 18, 2008 06:30 AM

Sir John Templeton is a billionaire. He started the Templeton Mutual Funds many years ago. But his real claim to fame was buying up shares of stocks that were less than a $1 during the Great Depression. He saw opportunity where others saw financial ruin and it made him rich.

It also took a lot of guts (and instinct.)

He’s 96 years old and now lives in the Bahamas full-time. Occasionally you see him interviewed in magazines but the last time I remember seeing an interview was a few years ago so it could be that he’s simply not talking to the press anymore given his age.

But in 2003, at the height of the dot-com bust, he gave an interview where he talked about the American housing market. Many laughed at him then.

Who is laughing now?

It sounds eerily accurate:

Moving on to housing prices, Sir John comments: “Every previous major bear market has been accompanied by a bear market in home prices. . . . This time, home prices have gone up 20%, and this represents a very dangerous situation. When home prices do start down, they will fall remarkably far. In Japan, home prices are down to less than half what they were at the stock market peak.” Sir John adds, “A home price decline of as little as 20% would put a lot of people in bankruptcy.”

Sir John also had a few words about debt — a four-letter word that folks seem not to care about: “Emphasize in your magazine how big the debt is. . . . The total debt of America is now $31 trillion. That is three times the GNP of the U.S. That is unprecedented in a major nation. No nation has ever had such a big debt as America has, and it’s bigger than it was at the peak of the stock market boom. Think of the dangers involved. Almost everyone has a home mortgage, and some are 89% of the value of the home (and yes, some are more). If home prices start down, there will be bankruptcies, and in bankruptcy, houses are sold at lower prices, pushing home prices down further.” On that note, he has a word of advice: “After home prices go down to one-tenth of the highest price homeowners paid, then buy.”

You might still think he’s crazy. Prices to fall 90%? Ha!

But that’s what they told him before the great stock bust in 1929-32. Shares of the greatest American companies all for sale for under $1? Never.

Sorry to be so bearish during this time when the stock markets are also struggling. But bear markets create opportunities. Be ready.

Just ask John Templeton.

He is my grandfather's generation.(I am 64...knows bull when he seesit..) Grandma pkk

All you deflationists need to open your eyes, your predictions are as dumb as the NAR. Housing is in a bind now because jumbo mortgages off-loadable to GSEs are capped at 417K. Now that Congress is getting rid of that impediment, watch the sales soar for this category of RE.

Look at the damned USD, it has resumed its downward spiral as gold and silver continue upward. The federal government is on a path that will result in inflation, not deflation. M3, along with similar measures around the world, is increasing at double digit rates - the dictionary definition of inflation.

Yes, house prices in some markets are correcting, but it will be temporary and inflation will soon erase those declines. As long as the banks and feds can continue to issue more credit, they can keep this party rolling along.

What they are doing is immoral and stupid, but men don't live forever. The guys at the top have apparently decided they will leave the bitter medicine for someone else, long after they are gone from the scene.

Better watch out Merrill Lynch, now all the trolls will start calling you a bunch of "loser renters."

January 24, 2008 5:19 PM

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Actually you're not too far off. These reports are written by lackey analysts right out of college. These analysts make $75-100K a year and live in NYC. That is the equivalent of $30K a year anywhere else in the country, save San Franciso where it's worth $45K. They rent shitty apartments with no hope in hell of ever buying anything.

Mission Viejo? (OC), and Las Vegas? Geez, those are two major crash markets that have a long way down still.

I guess Yun must've placed that article.

We're always tempted by the fact that you can live in a mansion in Mission Viejo for the cost of a tiny shoebox house in Newport Beach, but then we remember it's an exurb and we'd be driving 30 minutes just to go out to dinner.

All you deflationists need to open your eyes, your predictions are as dumb as the NAR. Housing is in a bind now because jumbo mortgages off-loadable to GSEs are capped at 417K. Now that Congress is getting rid of that impediment, watch the sales soar for this category of RE.

Houses priced under 417K and off-loadable to the GSE's are not selling so why would bigger houses start selling if they could be off-loaded? Also, the GSE's don't do no-doc loans or 100% financing so you need 140K down and prove you can afford that 700K home. The median income is certainly not soaring so where is all this new money to get big home sales soaring going to come from?The housing boom started to fizzle in 2004. The only thing that kept it going was no-doc, no down and ARM's with low teaser rates. Most loans made in 2005 and 2006 contained some part of that toxic mix. Those days are over. If you say house sales will soar you need to explain the mechanics of how that will happen in some detail.

"Actually you're not too far off. These reports are written by lackey analysts right out of college. These analysts make $75-100K a year and live in NYC."

Dude, those low salaries are the mandatory 3 yr face time before attending Wharton, Harvard, Stanford, or London b-schools. Afterwards, they'll be upgraded to $200-$250K [plus bonus, if they can come up with a new derivative scam for the masses... junk bond/option indexed for alternative fuel sources, anyone?]

But for those who think that the worst is over, Merrill Lynch said that housing prices still remain comparatively high. The brokerage believes that home prices are still far above historical norms when compared to other measures such as rent or GDP. "By our calculations, it will take about a 20 to 30 percent decline in home prices to correct this imbalance," said the report.

Merrill Lynch believes that housing starts will most likely slide another 30 percent by the end of 2008 - a historic low.

What don't you get Larry? House prices as a whole remain unaffordable to the masses, and must come down if the market is to come back again. It's that simple.

ALLEY OOP - sorry but you dont have a CLUE about what is happeningin the real world - with the exception of manhatten and MAYBE certain pockets in cali - home prices have dropped 20-30% on average nationally with no bottom in sight - housing my know nothing friend is in a bind because its GROSSLY overpriced in relation to incomes that can support a real live honest to God conforming mortgages with 20% down - which is where we are at RIGHT NOW - UNLESS you have a FICA of 800, $2 million in liquid verifyable assets AND a kick asss job AND 4-6 months of payments AT THEIR HIGHEST RESET LIMITS in the bank.

All you deflationists need to open your eyes, your predictions are as dumb as the NAR. Housing is in a bind now because jumbo mortgages off-loadable to GSEs are capped at 417K. Now that Congress is getting rid of that impediment, watch the sales soar for this category of RE.

Incorrect. The true culprit behind the massive increase in housing appreciation was the derivatives market and the ability to package loans and resell them to some poor shmuck downstream. Now that this market no longer exists and now that the euphoria has died down around housing, we will have depreciation in housing prices. The FRE/FNM loan limit increase is meaningless as another poster indicated because they do not do "no doc" loans. And you will need a sizable downpayment to qualify.

Remember that in the end, your home is only worth what someone is willing AND capable of paying.

"Dude, those low salaries are the mandatory 3 yr face time before attending Wharton, Harvard, Stanford, or London b-schools. Afterwards, they'll be upgraded to $200-$250K [plus bonus, if they can come up with a new derivative scam for the masses... junk bond/option indexed for alternative fuel sources, anyone?]"

dude you gotta stop watching Sex and the City. SOME of the analysts get the $250K jobs plus bonus. Most don't. And it's 2 years not 3.

I know a Wharton MBA grad who maybe makes $175K. I know an LSE MBA who works for the Dept. of Energy in DC. If he makes $150K I'd be very surprised.

Take a loo at median income for top 20 MBAs and it's not all $250K IB high life living like you think. For every guy making $250K or $500K which is more typical in IB there are 10 guys barely making $150K as some bullshit VP pushing paper around.

hey mr./mrs. spelling nazi - a few mis-spelled words typed in haste DOES NOT negate the validity of the points made in that post! if you feel youre up to trying to refute what i done rote ther then by all means knock yourself out- be interesting to see if you actually have a cogent opinion on what is REALLY happening in our economy! my guess is you dont have a clue.

ANON 9:04 - that poster is partially correct - MBS have been around since 1970 - ABS have been around since 1987 - the combination of the vehicle (MBS, ABS, etc.) the engine (greeenspans fuck up of leaving the discount at 1% way way way too long flooding the banks with dirt cheap $) and the driver - (GREED by all parties involved from the banks to the consumer) drove the housing bubble - plain and simple.

Yes, house prices in some markets are correcting, but it will be temporary and inflation will soon erase those declines.

You forgot about incomes, you idiot. Without the liars loans, incomes have to be able to keep up with prices. When Congress passes the new law banning refi fees, the option ARMs will go away. The RE market is dead without easy credit.

ANON 9:04 - that poster is partially correct - MBS have been around since 1970 - ABS have been around since 1987 - the combination of the vehicle (MBS, ABS, etc.) the engine (greeenspans fuck up of leaving the discount at 1% way way way too long flooding the banks with dirt cheap $) and the driver - (GREED by all parties involved from the banks to the consumer) drove the housing bubble - plain and simple.

True. But interest-only loans were in existence since the early 1900s.

Regardless of the age of a particular mechanism, it derivatives market did not get out of hand UNTIL recently. Despite the fact that MBS has existed since the 70s, its impact was marginal.

In the end though, these are all sidebars. The true state of housing can easily be gauged and no one, realtor or otherwise, can get around simple math. The math being that current incomes in various areas cannot support the current cost of housing. That disparity can only be "fixed" in two ways.1) Wages go up to meet the value of housing2) Housing prices go down to meet the current wage of the area.

Which is those two scenarios is more likely? Well, being that wages have been pretty stagnant now for 7 years and rents are at parity with wages (making them substantially cheaper than equivalent housing), a betting man would likely say option 2 is the more likely outcome.

Why dont you go ahead and put your house on the market or better yet go and buy a property. Test your theory and report back in 6 months.

This is the mother of all housing recessions. Listen to the Homebuilders own statements. We are in a downward spiral and will be a long drawn out process. Just because people dont see drastic changes in a short period of time, that does not mean the market is not falling. Do your own homework, dont listen to anybody here. Research the past housing downturns and you will see that it takes time to develop. With incomes unable to match up with home prices, there will be severe pain. The sentiment in the market has turned and will undoubtedly be backed up by falling numbers.

Real Estate is not the stock market. It cannot just turn around at a moments notice. The Titanic has set sail and is moving very slowly.

The real estate market will not die. It will correct. Bush isn't gonna let the sh$t hit the fan for this during his remaining term (what should be rising interest rates), houses sold even when interest was at 13%, with the use of realtors, it just won't be 10,000 of them per square mile, loans were made to people who could pay them, prices were marked to market. Realtors will charge 1.5 to sell and 1.5 to other agent if they want to eat because there will always be a glut of people that either don't have a clue and think selling a home is a step short of rocket science or who would rather pay someone to deal with what would be an inconvenience for them. I just wish they would stop prolonging the inevitable, raise the rates, let the proverbial sh$t hit the fan and cycle itself out. It's 3-4 years of pain or double that if the fed/govt keep playing hot potato. I'm ready for some massive foreclosures, I didn't pay to live in the ghetto.

The problem with an inflationary rescue to the housing crash is that houses are usually bought 90% on credit. If you begin to inflate your way out of problems, it gets tough to convince others to lend to you at a rate that doesn't just factor in the inflation. Current sales comps are propped up by current credit conditions such that a hyper-inflationary scenario actually worsens the correction.